Torrent Pharmaceuticals reported healthy performance for Q3 FY21, led by a slightly better than expected operating performance. Revenues for the quarter stood at Rs 1995 cr, up by a meager 1.5% yoy and were in line with the estimates. The operating margins for the quarter stood at 30.4%, up by 296 bps yoy, driven by savings in the other expenses. Tracking the operating performance, the PAT for the quarter stood at Rs 297 cr, up 18.3% yoy and was ahead of the estimated Rs 276 cr. Sharekhan retains Hold recommendation on Torrent Pharmaceuticals Limited (Torrent) with a revised price target of Rs 3100. Torrent Pharma share price closed at Rs 2758 up Rs 7 or (0.25%) on Monday.

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Torrent Pharmaceuticals India business has higher dependence on chronic therapies, which bodes well for the company. The company derives 60% of its sales collectively from India and Brazil markets. Torrent has outperformed the industry growth in both these markets and looks to sustain the momentum backed by new launches.

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Torrent Pharmaceuticals India business saw a strong new launch pipeline of 20 new products in FY2021 and a slightly lower no of launches in FY2022, would drive the growth leading to market outperformance. Brazil though is growing in healthy double digits, an adverse impact of currency could be overweight on the performance.

In local currency, Torrent Pharmaceuticals looks to outperform the Brazilian market growth backed by new launches in the branded generic space. The Europe business is on the path to improvement. Growth in the US is expected to be constrained due to price erosion and the absence of new launches.

Torrent Pharmaceuticals has submitted responses to the USFDA for its three plants, classified as OAI/WL by the regulator. The management expects the Levittown plant to commence operations possibly by end of FY2021, while a revert from the USFDA on Dahej and Indrad is awaited. Timely and successful resolution of USFDA issues is critical from a growth perspective as new product approvals could be expected once the plants get clearances.

Torrent Pharmaceuticals Key positives:

The India formulations business grew by 7% for the quarter, outperforming the growth in the Indian pharmaceutical markets.
Torrent Pharmaceuticals has repaid Rs 850 cr of debt in 9M FY21 and has guided to repay around Rs 1000 cr in FY2021.

Torrent Pharmaceuticals Key negatives:

US sales declined by 23.4% yoy due to the of lack of new launches and price erosion
Delay in resolution of OAI/WL at Indrad, Dahej and US plants
Brazil revenues declined by 8% yoy impacted by the adverse currency situation
Operating expenses to normalize in FY2022, hence management expects operating margins to be around 29% (for FY2022) as compared to 30.5% in FY21

Torrent Pharmaceuticals Key risk:

Delays in resolution of USFDA issues at its plants.